FPI limits in G-secs, state govt loans to be hiked to Rs 2.14L cr

RBI to open up unutilised limits by long-term FPIs at end of half year to FPIs across categories

The Reserve Bank of India (RBI) on Tuesday announced the foreign portfolio investor (FPI) investment limits in central and state government securities will be hiked to Rs 2.14 lakh crore from the current Rs 1.865 lakh crore in two tranches by July 5.

The limits on central government securities for FPIs across all categories will be increased to Rs 1.40 lakh crore with effect from April 4 and will be further hiked to Rs 1.44 lakh crore beginning July 5. The current limit stands at Rs 1.35 lakh crore. Additional investment limits for long-term FPIs like sovereign wealth funds will be increased to Rs 50,000 crore beginning April 4 and will subsequently be hiked to Rs 56,000 crore from July 5. Currently the limits stand at Rs 44,100 crore.

Latest depository data points out that long-term FPIs have only utilised 80.51% of the permitted limit of `44,100 crore.

Since the investment limits have remained unutilised, the central bank has decided that any limit remaining unutilised by the long-term investors at the end of a half year would be made available as an additional limit to the investors in the open category for the following half year.

“Accordingly, the limits for the long-term investors remaining unutilised at the end of the half year ending September 30, 2016 will be released for investment under the open category in October 2016,” the RBI said.

If the unutilised limits are opened up to FPIs across all categories, it would mean further foreign inflows into the Indian debt market as foreign investors under the open category usually lap up the additional limits available for investment. Auctions are conducted when the investment limits get freed up either due to redemptions or sell-off and FPIs put in their bids for acquiring these limits on G-secs.

This is evident from Monday’s auction where FPIs bid for limits on Rs 6,810 crore worth of securities against the notified amount of `5,035 crore.

The investment limits on state development loans (SDLs) for FPIs across all categories will also be hiked to Rs 10,500 crore beginning April 4 from the current `7,000 crore. It will further rise to Rs 14,000 crore with effect from July 5.